Patent

Under the America Invents Act, manufacturers possess a powerful tool for combatting overly broad competitor patents: inter partes review (IPR). IPR allows any party to challenge one or more patent claims by filing a petition with the Patent Trials and Appeals Board (PTAB) at the United States Patent and Trademark Office (USPTO), showing that the challenged claims are likely invalid on specific grounds. A petitioner is not required to show that it has suffered actual injury due to the challenged patent. This means that anybody can challenge patent claims by IPR.

Accordingly, IPR is an attractive option for a manufacturer concerned that its forthcoming product might trigger a patent infringement suit. If the PTAB agrees with the petitioner that one or more claims are invalid, it will cancel the challenged claims, clearing the way for new product development. A petitioner unhappy with the Board’s decision to uphold challenged claims, on the other hand, may appeal to the Court of Appeals for the Federal Circuit.

But the Federal Circuit isn’t for everybody. Although any party can file an IPR petition, not just anybody can appeal an IPR decision in federal court. Instead, the Federal Circuit requires that IPR appellants establish standing to appeal by showing actual injury, or injury-in-fact. Earlier this month, the Federal Circuit began to address this requirement as it relates to IPR appeals in JTEKT Corporation v. GKN Automotive Ltd.

The Challenged Patent

GKN Automotive Ltd. owns U.S. Patent No. 8,215,440 (“the ‘440 patent”), which covers a drivetrain for a four-wheel drive vehicle. The drivetrain at issue contains primary and secondary drivetrains, and it can be switched between two-wheel drive and four-wheel drive modes.

JTEKT Corporation, which had been working on its own drivetrain concept, petitioned the PTAB for IPR of claims 1-7 in the ‘440 patent. After GKN disclaimed claims 1, 4, and 5, the Board concluded that claims 6 and 7 were invalid. However, the Board upheld claims 2 and 3. Concerned that the surviving claims presented a litigation risk for its drivetrain concept, JTEKT appealed the Board’s findings on claims 2 and 3 to the Federal Circuit.[1]

The Federal Circuit’s Ruling

JTEKT makes clear that the Federal Circuit’s doors are not always open to IPR challengers. Judge Dyk, writing for a three-judge panel, stated that even though U.S. patent law allows petitioners to appear before the PTAB without showing actual injury, the law “cannot be read to dispense with the Article III injury-in-fact requirement for appeal to this court.”[2] Therefore, the burden is on the IPR petitioner to show actual injury before appealing to the Federal Circuit.

The Federal Circuit then outlined the broad contours of the injury-in-fact requirement for IPR appeals. For starters, it cited Supreme Court precedent requiring that an injury-in-fact be “concrete and particularized,”[3] not merely “conjectural or hypothetical.”[4]  Applying this standard to IPR appeals, the court wrote:

Our cases establish that typically in order to demonstrate the requisite injury in an IPR appeal, the appellant/petitioner must show that it is engaged or will likely engage in an activity that would give rise to a possible infringement suit or has contractual rights that are affected by a determination of patent validity.[5]

When it filed its appeal, JTEKT did not have a product on the market that would infringe the ‘440 patent. The Federal Circuit carefully pointed out that the absence of an infringing product does not necessarily preclude standing to appeal, then offered the following guidance:

[W]here the party relies on potential infringement liability as a basis for injury in fact, but is not currently engaging in infringing activity, it must establish that it has concrete plans for future activity that creates a substantial risk of future infringement or likely [will] cause the patentee to assert a claim of infringement.[6]

In this case, JTEKT had begun developing its own driveshaft concept in 2015 but had not finalized its design. Instead, the record indicated that JTEKT was in the process of validating its driveshaft concept and conducting customer demonstrations, leaving open the possibility that its design would further evolve. Without a final product to analyze for infringement, the Federal Circuit was unwilling to recognize an injury-in-fact. Furthermore, the court noted that estoppel  based on participation in the IPR does not constitute injury when the appellant/petitioner is not engaged in activity likely to spawn an infringement suit.[7] Finding no such activity, the court dismissed JTEKT’s appeal for lack of standing.

But the Federal Circuit left the finer contours of the injury-in-fact requirement unclear. Although the court asserted that an appellant need not go so far as to concede infringement, it did state that an appellant must show “that its product creates a concrete and substantial risk of infringement or will likely lead to claims of infringement.”[8] Without offering many clues about what constitutes “concrete and substantial” risk of infringement, the Federal Circuit refused to recognize such a risk in JTEKT, absent a final product design that could support an infringement analysis.

Considerations for Automotive Manufacturers

To recap, IPRs undoubtedly are a useful tool for invalidating patent claims that obstruct new product development. A manufacturer can initiate these proceedings without establishing actual injury. It is a different story, however, if a petitioner appeals an adverse IPR decision to the Federal Circuit. In that case, the Federal Circuit seems to require that an appellant/petitioner possesses a final product design which creates a “concrete and substantial” risk of infringement.

What evidence demonstrates design finality without conceding infringement is unclear, but future cases decided at the Federal Circuit will no doubt flesh out this standard. In the meantime, the JTEKT ruling puts additional pressure on automotive manufacturers developing new components that closely resemble patent-protected competitor products. Such manufacturers face a difficult choice when considering IPR strategy. They may either:

(1) challenge a competitor patent early in the design process, risking estoppel and an adverse IPR decision that cannot be appealed for lack of standing; or

(2) sink research and development dollars into designs that pose a higher infringement risk but create standing to appeal an adverse IPR decision.

In either case, automotive manufacturers challenging competitors’ patents by IPR should be prepared to show that their product designs are mature enough to support an appeal, should the Board side with the patentee. At the same time, it may be tricky to make this showing without conceding infringement. Nonetheless, IPR remains an effective tool for challenging overly broad patents that stymie automotive product development, provided that petitioners challenge competitor patents sufficiently late in the design process to underwrite standing for appeal, without sacrificing the flexibility required to change course if problematic patent claims survive inter partes review.

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[1] See 35 U.S.C. § 114(c) (2016).

[2] JTEKT Corp. v. GKN Auto. Ltd., No. 2017-1828, 2018 WL 3673005, at *1 (Fed. Cir. Aug. 3, 2018).

[3] Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1545 (2016).

[4] Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992).

[5] JTEKT, 2018 WL 3673005, at *2 (internal citations and quotations omitted).

[6] Id. (emphasis added).

[7] Id. at *3.

[8] Id. (emphasis added).